|
Since it was my first time rehabbing, I didn't know
what a gut was but that is what I heard someone say to me so I went with
it. The only thing I saw was the finished product. I knew that once it was
finished it would be beautiful, a diamond in the rough as they say.
I finalized my financing, which was a rehab loan that
covered both the purchase and rehab costs. I had my plan to gut the
property and I needed a contractor. Now remember, this was my first
project and I didn't know the difference between a good contractor and a
bad one. The only thing I knew was to choose a contractor. So I did what
we all usually do when we don't know something, I asked a friend. He
referred me to a contractor he described as “great” who gives great
discounts, and does great work. However, my friend didn't know anything
about rehabbing just like I didn't. So in this case I should have done
some research. I should have called around and gotten bids. I should have
definitely gone to check out previous work that the contractors had done.
Nevertheless I went with my friend's recommendation.
Now I have my contractor and we meet and he too,
suggested gutting out the building - starting all over with new
mechanicals, new porch, new electrical, new floors, new everything. I was
excited, he was excited, I gave him $8,000 and he began demolition on the
walls. He put up some heating ducts and was never to be seen again. He
left me with a shell of a building and some duct work that I could have
put up because it was wrong. I couldn't believe it. This was my first
project and this happens. I was at a point where I didn't know what to do
so I went to see my lender who had given me the rehab loan. She advised me
to become my own general contractor and get the job done, because at this
point I had no other choice. So essentially, I went to work. I took the
money that I had left and itemized it out for each section that had to be
done. I was working with $8,000 less so I needed some favor from the
contractors who were coming in to complete the project.
I began to screen different contractors for each part
of the building that needed to be done. Unfortunately I needed someone who
could do everything and do it at a great price with quality work. After
carefully screening each contractor, I finally came across the three that
I was looking for. I needed one for the electricity, one for the heating
and furnace, and one who could complete everything else. They were great.
The electrician began his work. It was very easy
because there were no walls. Once he completed his assignment, my heating
guy came in and had to take down all the duct work that the previous
contractor had put up. The beauty about this guy was that he allowed me to
buy my own material so that I could control the cost. My other contractor
was heaven sent. He came in and completed everything else remaining in the
building. This guy was great. Not only did he allow me to buy my own
material, but he was quick and worked efficiently every day until the
project was completed. He even had a little luncheon for me because he was
so excited that we got this project done considering the circumstances.
Needless to say, after hitting the concrete wall in
the beginning phase, I got the job done and it ended up being a beautiful
property. I made a little money (see Figure 1) and my project was
featured that year by my lender as one of their success stories. As I
look back on it, it was one of the best projects that I have done and I
definitely learned some very valuable lessons which I’ll share with you:
- Do not be forced into signing a contract under
pressure.
- Get all estimates in writing.
- Never sign a contract, if you do not fully
understand it.
- You have three business days from the time you
sign the contract to cancel any contract if the sale is made at your
home.
- Always ask if the contractor will guarantee his or
her work.
- Only sign a certificate of completion or make
final payment when the work is done and to your satisfaction.
- Never pay a contractor who demands cash payments,
always have a record of your payments.
- If working with a general contractor, request
lien waivers to protect your property from
subcontractors filing a lien against your property.
- It is ok to ask a contractor for references.
INSIDE THE NUMBERS
Property
Purchase Price: $85,000
Estimated Rehab Budget: $60,000
Loan Amount: $145,000
Actual Rehab Cost: $62,500
Sales Price: $234,000
Out-of-Pocket Cost: $2,500
Gross Profit: $86,500
Angela Walker is a licensed Broker with Coldwell
Banker and President of Wealth Redemption, Inc. She has been investing in
real estate since 2002. She can be reached at
708-983-8178 or angela@wealthredemption.com |
